Value Investing Congress: EchoStar, Fairfax Financial, Berkshire Hathaway
Whitney Tilson and Glenn Tongue move on from their presentation on the housing bubble and credit crisis to their current stock picks. They present on EchoStar (SATS), Fairfax Financial (FFH), and Berkshire Hathaway (BRKa).
EchoStar Corp. is a spinoff of EchoStar Communications (DISH). They make set-top boxes, but also includes Slingbox. Also has satelites/broadcast business.
Sum of the parts analysis
Cash: 1.1 billion
Set-top box: 1.6-2.4
Technology (slingbox) 0.4
Total $2.3-3.3 billion (25.60-36.60/share)
EchoStar not buying back stock because they are seeing better deals for their stock.
T2 use to be short Fairfax Financial when they were so weak one hurricane could take them out. Now Tilson is long as the company has strengthened. Fairfax Financial CDS portfolio has paid off nicely.
Should trade 1.3 to 1.5 book. Right now trading at around 1.25 book, but they have added 574.5 in realized cash proceeds from selling CDS in the third quarter so adjusted P/B is more like 1.16.
You are getting a great CDS portfolio but there is a high short interest ratio. The company is buying back stock and their behavior does not indicate they are likely to be crooks.
T2 estimate of Berkshire Hathaway’s intrinsic value is $157,000/share and forward value of $178,000/share. Berkshire Hathaway is apparently down 5% today.
Tilson doesn’t believe the Community Reinvestment Act and Fair Housing Act was a major contributor to this problem. Fannie Mae and Freddie Mac were some of the only lenders to maintain standers. Their problem was that they got sucked into increasing leverage too much.
What’s your outlook for consumer exposure? They regret being early. They were long retailers, but short real estate broad index and retail real estate REITs. Therefore, they are not down as bad. They want the best companies in the worse out of favor sectors. They are looking at buybacks being made by retailers. Sears is buying back lots of stock with their cash.
Tongue discusses Target (TGT) thinks they will be a relatively strong company as they survive this crisis. They will loose a year of cash flow but it won’t materially impact the DCF for Target.
Will there be a great bust in municipal bonds? A big question and Tilson doesn’t invest much in bonds. Tongue responses to the analogy of the Great Depression and doesn’t think with the appropriate action we will end up in that position. Will they need a bailout? They will likely get one if they need it. The example here is the California general revenue bond. Tilson expects default rate for municipalities will increase, but not be widespread like a Great Depression.